The process is still unfolding, but we have a fairly clear picture of what the twin peaks approach will mean.
In practice, the South African Reserve Bank will house a prudential authority that expands its oversight authority beyond banks to include all financial institutions. And the Financial Services Board (FSB) will focus on how financial institutions conduct themselves and treat their customers.
Consumers will be hoping the new market-conduct authority will fulfil its mandate with more vigour than the FSB has done. Critics say it has not acted swiftly or effectively enough in cases where consumers have ultimately lost a great deal of money.
Encouragingly, this appears to be one of the key motivations behind the reform.
“The future definitions are broader because they include specific financial service activities such as insurance, banking or advice, as well as saying that if there is another activity that in effect serves a similar purpose, it will be a financial product or financial service,” said Leanne Jackson, the head of market conduct strategy at the FSB.
“At the moment people are able to design their business models in such a way that it falls between gaps in the legislation, but this new legislation will go a long way towards closing those gaps,” Jackson said.
She adds that the new legislation also has a more forward-looking approach to how powers are used.
The market conduct authority will also have a specific obligation to monitor emerging risks and trends and to decide whether these should be brought into its net. Jackson said this should allow for swifter action in cases where threats to consumers are identified.
“It’s not about speed for speed’s sake, but whether we can act in an appropriate time to be as pre-emptive as we can,” she said. “One of the principles going forward is we need to be more intensive and intrusive.
“There is no debate that we will need up-skilling and capacity building, both internally and through the recruitment of new skills and new capacity,” Jackson said. “There is a detailed process under way to discover what the gaps are and what resourcing we will need.”
Jackson believes the need for conglomerate supervision is vital.
“The ability to have the same sets of eyes looking at conduct across those groupings is very important,” she said.
“One of the lessons of the global financial crisis is that you ignore conduct-related risks at your peril, because they lead to prudential and systemic risks if they are unmanaged.”